Mobile phone networks must think consumers are idiots

Apple iPhone: talk isn't cheap if you're locked in to the wrong contract. Photograph: Sarah Lee for the Guardian

'My goal in life has been to have just enough money to ignore 8-point Helvetica!' Thus spake a close friend one night in a quiet San Francisco bar. His objection was neither stylistic nor ophthalmologic. We were, once again, lamenting the shenanigans and ruses, the hidden fees and "some restrictions apply" (see, if you can, Sprint's mendacious use of Truly Unlimitedhere and here), the roach motels of mileage plans, the nickels and dimes extracted by subterfuge, legally or not. In a word, or six, the tyranny of the fine print.

By accumulating "just enough money", my friend has the luxury of not having to fight the schemers to the last dollar, of not spending hours on the phone arguing with a robohuman who has been cruelly programmed to confuse and outlast the overly-curious customer. His benign neglect allows him to keep a sunny view of life and a calm mind.

Lucky man.

Most of us don't lead such a charmed life. We can't, or shouldn't, ignore the amendments, refinements, and exceptions that belie the marketing come-ons. But the fine printers — the airlines, credit card companies, internet providers and, most of all, the mobile phone carriers — rely on our neglect, benign or not. They think they can prey on us, that we're too stupid or lazy to fight back, to protest their obfuscating plans and bizarre bills.

Because of their ubiquity, the cell phone carriers get the most heat. They'll sell you a $650 iPhone for a mere $200…and then recoup the $450 shortfall by adding a bit of the difference to each installment of your (mandatory) 24 month "service" contract. If you try to break the manacles, you'll pay for the fractured iron. It's right there in the fine print.

Last year, a group of concerned professionals called for an end to the confusing and wasteful smartphone subsidies. The group? The carriers themselves (see Carriers Whine: We Wuz Robbed!).

Verizon and AT&T make a spectacle of groaning under the weight of these awful subsidies. They get the Wall Street Journal and others to repeat their stories wholesale in articles such as this one: How the iPhone zapped carriers.

"I repeat what I've mentioned before: The iPhone is primarily hired as a premium network service salesman. It receives a 'commission' for selling a premium service in the form of a premium price. Because it's so good at it, the premium is quite high."

Dediu's observation applies equally well to all the top smartphone brands. They're all bait, a great way to hook the customer into a revolving 24 month agreement, with high ARPUs (average revenue per user) stemming from the nature, the breadth and attractiveness of services provided by these high-end devices.

T-Mobile, the perennial dark horse, has been one of the more vocal plaintiffs. Besides clearly stating that the company didn't need the iPhone, T-Mobile has hinted that it would get rid of the blood-sucking payments to handset makers altogether.

Last month, the hints became reality. T-Mobile "re-imagined" itself as the Un-Carrier:

"With no more annual service contract required, we don't lock you into a big commitment with our Simple Choice Plan."

It's a clever idea: T-Mobile has seemingly decoupled hardware and service. If you bring your own phone, you just pay for service. If you need a phone, T-Mobile will be happy to sell you one, let's say a 16Gb iPhone 5 for $99…and as an added convenience (watch the left hand), they'll offer you a 24-month contract at just $20/month! You want out before serving your two-year sentence? No problem! Just pony up the full price of the phone; other terms and conditions may apply.

But the company's too-clever way with words didn't sit well with other observers. The no-contract claim is obviously disingenuous; it only applies to people bringing their own phone, a tiny minority. For typical customers — those who get their phones from their carriers — the manacles are too familiar.

"As attorney general, my job is to defend consumers, ensure truth in advertising, and make sure all businesses are playing by the rules."

T-Mobile backed down. The company admitted that there actually is a contract, a subsidy, and they offered to make things right with customers who accepted the agreement under murky pretenses.

Happy ending, congratulations to the vigorous AG.

Still, what were T-Mobile execs thinking? Did they really think that we're such idiots that we can't see a 24 month obligation as a contract? What sort of corporate culture produces this type of delusion?

In theory, T-Mobile was onto a good idea. You bring your own phone, you truly pay less and you're not tied to a contract. Come in, stay as long or as little as you'd like, pay by the month.

But this isn't how the market works in practice. The rapid succession of new phones makes the latest model more desirable. As a result, carriers have an opportunity to tie their customers down by offering the newest device at an artificially low price — and get a comfortable two-year income stream to recoup the subsidy.

Meanwhile, there's other news in the carrier world:

Verizon is locked in difficult negotiations for the purchase of Vodafone's 45% share of the company. This is in a context where, two years ago, Vodafone made the decision to shed its participation in other carriers such as Orange, SFR or China Mobile. In their bid/ask conversations, Vodafone and Verizon are $30bn apart, Verizon offering a mere $100bn while Vodafone won't take a penny less than $130bn.

Softbank and Dish Network are in a bidding war for Sprint, probably out of gluttony for more punishment. Masayoshi Son, Softbank's leader, graciously spared us the carrier-as-victim lament. But if Dish Chairman Charlie Ergen prevails, we can be sure this seasoned sob story practitioner will fit right in once he becomes a cellular operator.

These are the people who tell us subsidies are killing them. They really do think we're idiots.